What are the lessons for today from running a wartime economy?

Britain’s experiences in two world wars suggest a few general lessons for the coronavirus emergency. The war analogy does not imply a spirit of our nation against the world. But it does suggest that we are living through a watershed that divides historical periods.

Our people face extraordinary demands. The public interest requires the control of work and leisure. The government calls for resources to be repurposed from other uses to medical equipment and healthcare. Fiscal rules are broken; a large post-crisis debt is inevitable. Corporate and family plans are upended. There are casualties and sacrifices – willing and unwilling. In these ways, it is just like a war (Broadberry and Harrison, 2020).

But there are also some important differences. Most obviously, there is no foreign enemy. If a pandemic was generally foreseeable at some point, the specifics of Covid-19 have caught us unaware. Moreover, Covid-19 has been able to disrupt our economy at a speed that no foreign enemy has ever matched.

Mobilising against Covid-19 may be more difficult than it looks

At the peak of the First World War, the governments of Europe’s great powers were spending 30-60% of their national incomes. In the Second World War, the peak war burdens were even heavier – 40-70% (Harrison, 1998; Broadberry and Harrison, 2005).

The direct burdens of fighting the pandemic are small by the standard of total war. The emergency funding package of £14.5 billion for the NHS and other public services announced by the Chancellor on 13 April amounts to a fraction of 1% of GDP (Treasury, 2020). While such measures are certainly abnormal, they resemble the costs of a minor conflict, not a great war.

Much larger burdens will arise indirectly, from measures to support business during the lockdown of the economy. The needs have been driven partly by the private action of individuals trying to avoid infection and partly by government restrictions forcing the economy into hibernation.

One study adds together the fiscal costs of ‘on-budget’ policy measures that increase borrowing and ‘off-budget’ measures that increase debt by creating contingent liabilities, such as lending to enterprise (Pacitti et al, 2020). On the expectation of a three-month lockdown, the authors put the total at 20% of GDP, and more if the lockdown lasts longer. This is more on the scale of a year of the Second World War.

In the two world wars, there was no lockdown. Rather, the major economies experienced a ‘war boom’ of production and employment. The expansionary impulse came from the sudden and very large increase in government spending, which averaged 15% of GDP across the major economies in the first full year of war (this was 1940 for Britain and Germany, 1941 for Italy, and 1942 for the United States, the Soviet Union and Japan.)

Nearly everywhere this burden was eased by growth: from 1938 to 1942, five of the six major economies expanded by nearly one quarter on average; only the Soviet economy shrank, being deeply invaded (Harrison, 1998). They also experienced some disruption, which arose in the ways discussed below.

In contrast to war mobilisation, the mobilisation of resources against Covid-19 has been impeded by three difficulties.

1. Lack of preparation

The Second World War was long anticipated. The onset of war was preceded by a decade and a half of contingency plans and production development. Many factories that supplied the war effort of 1939-45, and most of the models they produced, already existed when war broke out. During the war, production lines were extended to new factories and military products were incrementally improved.

Within the period of the war there were few breakthrough inventions on either side, and only one – atomic weapons – that made any real difference. Thus, war preparations were crucial. In the war on Covid-19, the poor state of contingency plans and stockpiles makes our situation more like the First World War, which came as a surprise.

2. Disruption versus mobilisation

When war breaks out, mobilisation has to compete with disruption. Disruption had two sources – war mobilisation itself, which could cause civilian shortages; and the external action of the enemy’s economic warfare through naval blockades and air attacks.

In the opening stage of the Second World War, mobilisation dominated, and all the major economies expanded. This made it different from the First World War, when all the continental European economies were disrupted and declined, impeding their mobilisation. They were more vulnerable to disruption because they had large agricultural sectors that were poorly integrated into the market economy. Peasant farming was hard to mobilise.

3. Disruption has outpaced mobilisation

The present situation is more like the First World War than the Second World War. The impact of Covid-19 closely resembles the intended effects of economic warfare. In fact, Covid-19 has disrupted our economy much more efficiently than submarines or bombers were able to do in the world wars.

While the government has tried to mobilise resources into healthcare and medical procurement, trade and transport have collapsed, and workplaces have been locked down. This has made it more difficult to keep health workers at work and to source protective and intensive care equipment, not to mention testing kits and vaccines.

Lessons

A pandemic might be more difficult to manage than a total war. The problem is not so much the scale of direct demands. More important are the speed of attack, the disruption that follows and the costs of mitigating the disruption. When the disease strikes, it may be too late to make up for missing stockpiles and technologies by mobilising rapidly.

How fast can production be accelerated?

In a crisis, everything is needed now, if not yesterday. Hospitals, clinics and care homes have needed intensive treatment equipment in tens of thousands, and protective equipment and testing kits in millions. They needed them in April, not in May. We have had to ‘build the plane as you’re flying it’ (as Kalipso Chalkidou of the Centre for Global Development was quoted in the Financial Times, 14 May 2020).

The sense of public disquiet this has aroused recalls the ‘shell scandal’ of March 1915, after the British Army in France ran short of munitions; and the parliamentary crisis of April 1940 over the government’s lack of readiness for the German occupation of Denmark and Norway.

How fast did they ‘build the plane’ in the Second World War? In an average week of 1943, when the British economy was fully mobilised and war production reached its peak, British industry was able to turn out 400 combat planes as well as four major naval vessels, 150 armoured vehicles, 2,500 guns and mortars, and 85,000 rifles and automatic weapons.

The journey to this point took years, not months or weeks. The acceleration of British war production was sustained but not world-beating. One measure is the time interval that was needed for production to go from 25% to 75% of the wartime peak. In the Second World War this was approximately 24 months for Britain, compared with 16 months in the United States, and 15 months in the Soviet Union. For Germany, the same transition took nearly three and a half years.

Lessons

Total war takes time. Resources and technologies cannot be brought instantly into existence when the nation’s survival is at risk. In the moment when a sustained crisis begins, it may be too late to begin to prepare.

Was Britain’s exposure to international trade a weakness?

At the beginning of the twentieth century, it was taken for granted that Britain would be most vulnerable of the great powers to a major war. This is because, in 1914 (and again in 1939), Britain relied on imports to cover around two thirds of calories used for human consumption – considerably more than today.

The reliance on imports was a legacy of the 1846 Corn Laws, which removed tariffs from food imports and gave British consumers access to cheap food from all over the world. By contrast, Germany protected its farming industry. Importing only 20-25% of calories and with overland access to the food resources of continental Europe, Germany appeared more secure.

The surprising outcome of both world wars was that it was easier to feed British towns from sources across the oceans than to feed German towns from farms a few kilometres away. There were four main reasons (Olson, 1963).

• By choosing greater specialisation and integration into the global economy than Germany, Britain’s economy remained richer and more productive. There was greater advantage in starting from higher productivity than from more self-sufficiency. Preferring food self-sufficiency over higher productivity, Germany made a bad choice.
• Britain had lower productivity than Germany in industry but much higher productivity in agriculture, which was more exposed to global competition. Because British agriculture was highly productive, and left many agricultural resources unused, it was cheap and easy to expand domestic cultivation by restoring unused marginal land to agricultural use.
• Britain’s economy was more market-oriented; it was more commercialised, more flexible and more amenable to government direction. Germany’s peasant farms stood partly outside the market economy and resisted wartime regulation.
• The British diet relied heavily on high-quality sources of animal proteins and fats. It was easy to maintain calories while switching to a more vegetarian diet. This was achieved by a mixture of price changes and government direction.

Another aspect of the two world wars is that Britain did not fight alone, but with the assistance of its dominions and colonies and its allies. The most notable expression of inter-Ally cooperation was that in the Second World War, Britain sent weapons to the Soviet Union for use on the Eastern front while America sent weapons, industrial goods and food to both its allies, free of charge.

As a result, Allied resources were supplied to the Eastern front, to Western Europe and to the Pacific in proportions that increased overall Allied fighting power (Harrison, 1996). By contrast, the Axis powers did not work out any coherent system of mutual aid and often did not even consult each other on strategic issues.

Lessons

Nationally secure supply chains are a false promise if lower productivity and reduced flexibility are the result. The struggle against Covid-19 is global in the sense that no country can be fully secure against it until it is overcome everywhere. Global cooperation is essential.

Can we rely on a ‘Blitz spirit’? What about ‘behavioural fatigue’?

The two world wars involved unprecedented government interventions in civilian life. In Britain in wartime, as in peacetime, most people continued to be kind and thoughtful, and to respect the law, taking their neighbours’ welfare and the common good into account when deciding how to act themselves. But did the British naturally pull together in the crisis and become more observant of the law when war broke out? The data on law enforcement in the Second World War suggest not (CSO 1995).

In understanding measures of law-breaking, it is important that some opportunities for crime declined just because of wartime conditions and shortages. Military service kept young men off the streets and out of town centres on Saturday nights. Despite this, crimes of violence did not decline, but remained stable. Other more serious offences (thefts, burglaries, receiving stolen goods, frauds, and sexual offences) increased by one half up to 1944. Petrol shortages kept civilian motorists off the roads, so traffic offences declined markedly. Most other minor offences remained stable. Juvenile offences generally increased; prison populations grew.

On top of peacetime laws, wartime regulations introduced a mass of new offences. These ranged from the night-time blackout to conscription, controls on employment and prices, and the rationing of food and clothing. Not everybody complied. During the war, there were more than a million prosecutions for violations. Notably, two thirds of prosecutions took place in the first half of the war.

Emergency regulations create a ‘prisoner’s dilemma’. Everyone may recognise the social damage caused by general non-compliance, but where is the additional harm in my own bending of the rules? The harm is small, provided others are generally law-abiding. But it is also small if law-breaking is already widespread. Meanwhile, the private profit from non-compliance may be great. To prevent this, it is essential to establish a social norm of compliance and to punish those who don’t comply.

A classic study compares price regulation in Britain and the United States in the Second World War (Mills and Rockoff, 1987). The British and US governments both adopted price controls. In Britain, price controls were more effective, measured by wartime gap between fixed and equilibrium prices.

How did Britain achieve greater compliance? At first, compliance was voluntary in both countries. Advisory recommendations were ignored, and evasion led to protests. Britain moved more quickly to enforcement and prosecuted violators more vigorously and on a larger scale. There was no difference between the two societies in patriotism, but British compulsion and enforcement made patriotism more effective in economic behaviour.

Throughout the war, civilians chafed at wartime restrictions. But there is little hard evidence of behavioural fatigue. On the contrary, only one third of prosecutions for violating wartime regulations came in the second half of the war. Among many, rationing became popular: the Labour Party won the 1945 general election on a pledge to maintain food and fuel rationing into the post-war years. This popular enthusiasm diminished as the war faded into memory, but rationing was not completely abolished until 1954.

Lessons

One lesson is that it seems that most people, although not all, will cooperate with burdensome rules that are seen to be justified by a national cause, fair in operation and firmly enforced. When there was a sufficient national cause, and when restrictions were vigorously defended and enforced, there was no behavioural fatigue. If restrictions were not enforced, behavioural fatigue was instantaneous, even in wartime. After the national cause was won, behavioural fatigue did set in, although with a considerable lag measured in years.

A second lesson is also a warning. Emergency situations can put great power in the hands of government. A sufficient cause is not always a good one. In 1930s Germany and Japan, ordinary people were induced to give up their freedoms for a bad cause.

Where can I find out more?

The economics of the Great War: A centennial perspective: Stephen Broadberry and Mark Harrison collect new research on economic aspects of the origins, conduct, and consequences of World War I.

The economics of the Second World War: seventy-five years on: Stephen Broadberry and Mark Harrison collect new research on economic aspects of the origins, conduct and consequences of Second World War.

Economic warfare in twentieth century history and strategy: Mark Harrison examines the role of economic warfare in the twentieth century.

Ramping up ventilator production: Lessons from WWII: Ethan Ilzetzki and Hugo Reichard discuss the factors enabling the rapid mobilisation of production

Who are UK experts on this question?

• David Edgerton, Kings College London, works on the British state and war.
• Mark Harrison, University of Warwick, has worked on the international economic history of the two world wars and especially on Russia and the Soviet Union.
• Daniel Todman, Queen Mary University of London, works on Britain and the Second World War.

Author: Mark Harrison

Picture by robynmac on iStock